Still suffering a hangover after emptying your wallet at the LCBO over the holidays?

You can drown your sorrows knowing that your money goes to a good cause: All those handsome profits are plowed back into general revenues to help bankroll hospitals and schools.

The LCBO robs Peter (you) to pay Paul (the government). That biblical theory might make you feel better, but it’s not the whole story.

Follow the money, as the province’s auditor general did recently. You’ll find that the LCBO is failing to maximize its profits — because it is leaving too much money on the table.

Yes, liquor stores charge you top dollar. But to the auditor’s astonishment, the LCBO frequently gives a break to its suppliers by paying them a more generous wholesale price than winemakers expect — and more than the market dictates.

This is still official LCBO policy. No, it was not devised after a few too many drinks by inebriated bureaucrats or politicians on the take.

It is simply one of those bizarre outcomes of bureaucracy gone awry. And a function of too much cash flow at one of the world’s biggest buyers of alcohol — a bounty that obscures the inefficiencies and price distortions that lie within.

Just days after the auditor’s scathing report last month, the LCBO issued its customary self-congratulatory press release trumpeting record revenues from the Christmas buying rush: $51 million. It racked up record net sales of $4.6 billion in 2010-11, which generated a handsome dividend of $1.56 billion for the provincial treasury.

Sounds good. Until you consider how much higher the profit could have been had the LCBO applied sound business principles by seeking the lowest-possible wholesale prices from suppliers. By virtue of its 618-store monopoly in a province of 13 million people, the LCBO could surely use its massive buying power to browbeat its suppliers.

Impossible, counters the LCBO with a straight face. Lower prices would violate its longstanding “social responsibility mandate” dictated by provincial governments of all political stripes who fret that as the price of plonk goes down, consumption goes up.

But here’s the question that left auditor general Jim McCarter scratching his head: Why not keep retail prices high (fulfilling its mandate) but still seek lower wholesale prices? By increasing its markup, the LCBO could pocket even higher profits to enrich its shareholders — you and me.

“A Walmart would certainly go back to their supplier and say, ‘Would you sell it to us cheaper?’ ” McCarter lectured the LCBO. “Nobody has your buying clout.”

Here’s how the bizarre policy works: The LCBO sets a price range for a particular class of wine. Suppliers bid with a proposed retail price, then work backwards from the LCBO’s fixed markup to arrive at a pre-determined wholesale price.

Absurdly, if a supplier’s suggested retail price (and therefore his wholesale price) is deemed too low, the LCBO goes back to the supplier and offers to pay a higher wholesale price so as to bump up the final selling price.

You have to wonder what a winery in Italy or Chile would think if an email arrived from the liquor board during negotiations, complaining that their proposed wholesale price was too low — and beseeching them to reconsider:

“Sir, we respectfully request that you bump up your wholesale price. The LCBO would feel guilty profiting from bigger markups. Kindly avoid low bids in future.”

Doubtless the winemakers of the world would raise a glass to toast the generosity, obstinacy and lunacy of Ontarians handing them more money.

But they already know the LCBO’s dirty little secret: It robs Peter (you and me) to overpay Paul (winemakers).

Drunk on cash flow, the liquor board has turned a rigid social responsibility mandate on its head — making winemakers richer, drinkers poorer, and shareholders dizzier. Time to sober up.

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